Saturday, May 07, 2005

Book review: Making poverty history

It was once said, poverty would always be with us. Jeffrey Sachs, a world-class economist and professor at Columbia University, doesn’t fully agree: poverty, at least of the worst kind, can be eliminated.

The End of Poverty: How to Make it Happen in Our Lifetime By Jeffrey Sachs. Penguin Books, London, 2005. xviii + 396 pages(The Jakarta Post, 8 May 2005) It was once said, poverty would always be with us. Jeffrey Sachs, a world-class economist and professor at Columbia University, doesn’t fully agree: poverty, at least of the worst kind, can be eliminated. In The End of Poverty, he proposes a way for the world to achieve this, not in our grandchildren’s or even our children’s lifetime, but in ours. If rich countries pay up their dues, he believes it is conceivable to stop extreme poverty in 2025.

The End of Poverty is, for the most part, about Sachs’s passion to end poverty by 2025. Behind this passion is his decade-long experience in Africa, where he observes first-hand the plight of people living in extreme poverty, a condition marked by the inability to meet even the most basic needs for survival. The experience taught him “a considerable amount about extreme poverty, the power and limits of globalization, and the indomitable strength of the human spirit in the face of adversity.” (p. 188).

The experience also taught him that extreme poverty was possible to eliminate. With the right approach, and adequate outside assistance, the poorest of households can begin to meet their minimum needs, allowing them a sustainable livelihood of their own. His objectives to end poverty, then, are “to end the plight of one-sixth of humanity that lives in extreme poverty and struggles daily for survival” and “to ensure that all of the world’s poor, including those in moderate poverty, have a chance to climb the ladder of development” (p. 24).

What causes extreme poverty, particularly in Africa? Bad governments (and governance) have taken a bad rap as the culprit for Africa’s poor economic performance. But according to Sachs, this would be misleading: compared to other countries around the world with similar income and quality of governance, Africa’s growth was as much as 3 percent lower. So, argues Sachs, extreme poverty in Africa was essentially a result of bad luck from adverse geography, and insufficient infrastructure (p. 314).

Sachs is at his best in providing compelling arguments to explain the underlying cause of extreme poverty. He skillfully mixes economic growth theory, empirical findings, and sprinkles of anecdotes to explain the notion of “poverty traps”. Without outside help, households in a poverty trap will see their capitals shrink and finally, destitution. But the governments of countries stuck in a poverty trap don’t have the resources to assist these households.

So, he proposes to have rich, foreign governments help these households instead. To do that, rich countries should live up to their promises, made in Rio de Janeiro 1992 and in Monterrey 2002, to increase foreign aid to 0.7% of their gross national products (GNP). Of the rich countries, the United States is the laggard, contributing a mere 0.15% of its GNP in 2003. Rich countries also need to coordinate their policies better through the three major international institutions: the United Nations, the World Bank, and the IMF.

His proposal on the donor side is, I think, quite comprehensive and workable. However, Sachs's book is missing out a critical element: What about the mechanism on the receiving side? Sachs took issue at excuses made by the U.S. government, based on prejudices against African governments, to avoid giving financial aid to the continent. However, the problem of corruption in Africa – and in most other developing countries - is real. Without a similarly comprehensive proposal to tackle this, it is not hard to imagine how the other proposal may fall on deaf ears.

Sachs clearly acknowledges that there are two parties to a compact to end poverty. “Poor countries have no guaranteed right …to accept development assistance from rich countries. They only have that right if they themselves carry through on their commitments to good governance” (p. 269). However, it is no easy task to figure out and ensure real commitments to good governance. A detailed proposal to do that is badly needed – and the book’s lack of such a proposal makes it rather incomplete.

This issue aside, The End of Poverty remains a valuable read. Economists, policy analysts, and development specialists and activists will find gems of ideas all over, particularly as Sachs shares his personal and professional experience advising for countries in Latin America, Eastern Europe, former Soviet Union, Asia and Africa. For the rest of us, it states the possibilities of our time: “how our generation could mobilize our capacities in the coming twenty years to eliminate the extreme poverty that remains” (p. 4). In short, it’s a statement of hope.

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I am a student in economics. This is not to say that I'm only interested in money supply, interest rates, or exchange rates. We care about all of the things that non-economists care about - we just see them in a unique way. I am also an Indonesian - which also doesn't mean I only care about Indonesian affairs. I was just born that way.